Understanding the New Trust Account Rule: A Simplified Approach to Deposit Insurance

May 1, 2024

For many of our customers at New Valley Bank & Trust, understanding the ins and outs of deposit insurance, particularly when it comes to trust accounts, can be a complex endeavor. The Federal Deposit Insurance Corporation (FDIC) plays a pivotal role in maintaining depositor confidence across the United States by providing insurance coverage for various types of accounts, including trust accounts.

In a significant move to streamline and enhance the clarity of deposit insurance for trust account holders, the FDIC has introduced a new trust account rule that took effect April 2024. This article delves into the key aspects of this new rule, highlighting its implications and benefits.

Simplification of Trust Account Rules

At the heart of the FDIC’s new rule is the consolidation of revocable and irrevocable trust accounts into a singular category known as “trust accounts.” This change is designed to simplify the understanding and application of deposit insurance coverage by eliminating the need to distinguish between different types of trusts for insurance purposes. Previously, there had been different rules for informal trusts (ie: accounts if a payable or death beneficiary was named), formal revocable trusts, and irrevocable trusts.

The new rule reduces the complexity previously encountered with separate categories and streamlines the insurance calculation process. For our customers, this means a more straightforward understanding of how their trust accounts are insured, fostering greater confidence in the safety of their deposits.

Enhanced Insurance Coverage Calculation

Under the new rule, the calculation of insurance coverage for trust accounts has been significantly simplified. Each trust owner is now insured up to $250,000 per eligible primary beneficiary, up to a maximum of five beneficiaries. This familiar calculation method not only simplifies the process but also makes it easier for trust account holders to predict and understand their coverage limits. For example, a trust owner with four eligible primary beneficiaries can be insured up to $1,000,000. This approach aligns with the FDIC’s goal of making deposit insurance rules more accessible and easier to understand for everyone.

Impact on Depositors

The new trust account rule is poised to have a positive impact on the vast majority of trust account holders. However, it’s important to note that in a few limited scenarios, some depositors may experience a decrease in coverage, specifically those who previously had coverage for more than the maximum limit of beneficiaries under the new rule. Despite this, the overarching effect of the rule change is beneficial, emphasizing simplicity and clarity in deposit insurance coverage for trust accounts.

A Significant Step Forward

The FDIC’s new trust account rule, effective April 1, 2024, represents a significant step forward in making deposit insurance more understandable and accessible for trust account holders. By consolidating the categories of revocable and irrevocable trusts and simplifying the coverage calculation, the FDIC aims to enhance the transparency and predictability of deposit insurance.

At New Valley Bank & Trust, we are committed to helping you navigate these changes and understand how they impact your accounts. We encourage you to contact us for personalized advice and to utilize resources like the FDIC’s EDIE (Electronic Deposit Insurance Estimator). 

For more information and guidance, don’t hesitate to reach out to our team at New Valley Bank & Trust. Let’s navigate these changes together, ensuring your peace of mind.

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Understanding the New Trust Account Rule: A Simplified Approach to Deposit Insurance